Last Thursday the US dollar fell to a two-year low against the Euro on growing expectations that the US Federal Reserve will continue bond purchases next year and that there will be no tapering in 2013.

However, recent European data has been weak with European growth figures, unemployment and European PMI figures weaker than expected over the last couple of weeks. With European data so weak, it seems unjustifiable that 1.38 USD are needed to buy one Euro.

There is still much political concern in much of Europe with French, Greek, Spanish and Italian governments very unpopular as austerity measures continue to hurt European lifestyles. Millions of the young unemployed are experiencing much hardship and dis-satisfaction as they have very little hope of securing a job in the near future. The rate of unemployment amongst those under 30 is still around 50% in Greece, Portugal and Spain.

The Euro at 1.38 is certainly toppy at this level and there is room for very little disappointment at this level. Goods and Services are far more expensive in Europe than in the US and the current exchange rate does not help French, German and Italian exporters. European tourist destinations such as Greece, Italy, Portugal and Spain which rely on foreign visitors are certainly not helped with the Euro at a two-year high against the US dollar. The Euro has certainly benefited from the political shenanigans in the US with the US government shutdown but now that a deal has been agreed attention is now back on the fragile state of the European economy and extremely strong currency. Something has to give!

Many traders fail at one of the most simple things to do when starting to chart a financial product (currency pair, equity, indices, etc). The old saying that the most difficult situations are coming out of the most simple setups seems to be true in this case as well.

Drawing a trend line is something any trader knows (or should know) as a trend line is supposed to be a line that connects at least two different points, and from that moment one it should hold true for the rest of the time the trend keeps going. However, as simple the definition may be, the reality is not as straightforward, as sometimes price is just playing tricks and breaks such a trend line, only for it to resume the initial trend a couple of candles later. So what should a trader do in order to avoid false breaks and, more important, how to treat such breaks? In order to answer to such a dilemma there are some things to take into

First, one should look for a beginning of a trend. Either this is being calculated based on Elliott Waves Theory, after a specific five waves structure is coming to an end (or a three waves structure as a matter of fact), or based on a specific economic release (fundamental analysis), the things to take into consideration from a technical analysis point of view are the same: try to find two points price reacts the most and draw a trend line from the beginning of the move through the second point and look for that trend line to hold true for the rest of the move.

Second, if this trend line is being broken (like the image below shows), than one should take into consideration the previous highs and the previous lows the move made. The most logical thing to do after the trend line is broken is to look for the current highs (if the trend is to the upside) or the current lows(if the trend is to the downside) and wait for the moment they are broken. By the time that is happening, this is a confirmation the trend is still up and the break of the trend line was a fake one.

The opposite is very much true as well. If, based on your analysis (regardless of it) you are looking for price to reverse, then the first thing you should look for is to try to identify a reversal pattern: head and shoulders/inversed head and shoulders, double/triple tops/bottoms, rising/falling wedges, or trend lines to be broken. On the last case, one should look for two things: first, the trend line to be broken, and second, wait for the next swing and see if the highs/lows are being taken. If yes, then this is a confirmation a new trend begins or at least a correction for the previous move is bound to take place. The example below describes exactly the things mentioned above and, as you can see, waiting for the next swing is the most logical thing to do.

All in all, the reason why the majority of traders is failing when dealing with trend lines is caused by the fact that the very definition of the concept is not respected. After all, we are talking here about a trend line, which in free translation means the line of a trend. And if the line of a trend is not broken, then why looking for price to turn when we have no visual confirmation that the trend is done in the first place?

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By CountingPips.com

The weekly Commitments of Traders (COT) report, not published for close to a month due to the partial US government shutdown, was released on Friday by the Commodity Futures Trading Commission (CFTC) and showed that large futures traders & speculators continued to decrease their bullish bets of the US dollar for a third week in a row on October 1st.

Non-commercial large futures traders, including hedge funds and large International Monetary Market speculators, cut their overall US dollar long positions to a total of $692.8 million as of Tuesday October 1st. This was a decline of $-2.89 billion from the total long position of $3.58 billion that was registered on September 24th, according to data from Reuters that calculates this amount by the total of US dollar contracts against the combined contracts of the euro, British pound, Japanese yen, Australian dollar, Canadian dollar and the Swiss franc.

US dollar overall long positions, on October 1st, marked a new lowest level since February 12th when US dollar bets were bearish at a total of $-3.02 billion.

COT explanation: The weekly cot report summarizes the total trader positions for open contracts in the futures trading markets. The CFTC categorizes trader positions according to commercial hedgers (traders who use futures contracts for hedging as part of the business), non-commercials (large traders who speculate to realize trading profits) and non-reportable traders (usually small traders/speculators).

Individual Currencies Large Speculators Positions in Futures:

The large non-commercial net positions for each of the individual major currencies directly against the US dollar on October 1st showed weekly increases for the euro, British pound sterling, Japanese yen, Swiss franc, Canadian dollar, Australian dollar, Mexican peso and the New Zealand dollar.

Individual Currency Charts:

EuroFX:

Last Six Weeks of Large Trader Positions: EuroFX

Date

Large Trader Net Positions

Weekly Change

08/27/2013

40081

3335

09/03/2013

22738

-17343

09/10/2013

12696

-10042

09/17/2013

31907

19211

09/24/2013

65844

33937

10/01/2013

68276

2432

British Pound Sterling:

Last Six Weeks of Large Trader Positions: Pound Sterling

Date

Lg Trader Net

Weekly Change

08/27/2013

-38226

1296

09/03/2013

-43046

-4820

09/10/2013

-38166

4880

09/17/2013

-6310

31856

09/24/2013

1174

7484

10/01/2013

1496

322

Japanese Yen:

Last Six Weeks of Large Trader Positions: Yen

Date

Lg Trader Net

Weekly Change

08/27/2013

-78353

-6632

09/03/2013

-79761

-1408

09/10/2013

-95066

-15305

09/17/2013

-88794

6272

09/24/2013

-92818

-4024

10/01/2013

-82324

10494

Swiss Franc:

Last Six Weeks of Large Trader Positions: Franc

Date

Lg Trader Net

Weekly Change

08/27/2013

402

111

09/03/2013

1059

657

09/10/2013

420

-639

09/17/2013

616

196

09/24/2013

5745

5129

10/01/2013

6636

891

Canadian Dollar:

Last Six Weeks of Large Trader Positions: CAD

Date

Lg Trader Net

Weekly Change

08/27/2013

-24959

-15415

09/03/2013

-34639

-9680

09/10/2013

-30942

3697

09/17/2013

-18764

12178

09/24/2013

-5675

13089

10/01/2013

-955

4720

Australian Dollar:

Last Six Weeks of Large Trader Positions: AUD

Date

Lg Trader Net

Weekly Change

08/27/2013

-71117

-7934

09/03/2013

-71506

-389

09/10/2013

-60032

11474

09/17/2013

-27360

32672

09/24/2013

-34819

-7459

10/01/2013

-28804

6015

New Zealand Dollar:

Last Six Weeks of Large Trader Positions: NZD

Date

Lg Trader Net

Weekly Change

08/27/2013

252

-2138

09/03/2013

-797

-1049

09/10/2013

-601

196

09/17/2013

5657

6258

09/24/2013

8055

2398

10/01/2013

10891

2836

Mexican Peso:

Last Six Weeks of Large Trader Positions: MXN

Date

Lg Trader Net

Weekly Change

08/27/2013

7198

-28933

09/03/2013

688

-6510

09/10/2013

8279

7591

09/17/2013

-10201

-18480

09/24/2013

14023

24224

10/01/2013

14601

578

The Commitment of Traders report is published every Friday by the Commodity Futures Trading Commission (CFTC) and shows futures positions data that was reported as of the previous Tuesday (3 days behind).

Each currency contract is a quote for that currency directly against the U.S. dollar, a net short amount of contracts means that more speculators are betting that currency to fall against the dollar and a net long position expect that currency to rise versus the dollar.

(The graphs overlay the forex spot closing price of each Tuesday when COT trader positions are reported for each corresponding spot currency pair.)

See more information and explanation on the weekly COT report from the CFTC website.

Sterling’s recent strength against the US dollar has been baffling. With the pound currently trading slightly above 1.62 USD, this is making UK exports even more uncompetitive and making it much harder for the UK to sell goods abroad. Goods in the US are generally far more competitively priced, some items at least 30 per cent cheaper and with sterling up more than 10% since July, this does no favours for UK exporters.

This morning’s UK GDP figures were in line with expectations with a rise of 0.8% for the third quarter – although this is good news, some economists had hoped and pencilled in a 1% increase. Are there signs of a slowdown in the growth of UK plc now after the better than expected economic readings over the last six months? The Office for National Statistics said there had been a “fairly strong” performance across all sectors. The data builds on a 0.7% GDP rise in the April-June period and this is the best quarterly performance since 2010. However, the UK is still behind a number of advanced economies, such as the US and Germany, that have managed to recover more strongly over the last few years.

The US dollar has been remarkably weak over the last few months as the political showdown between the Democrats and Republicans resulting in the government shutdown and the struggle in agreeing to the US government debt ceiling has done no favours for the world’s biggest economy. This has cost billions of dollars in lost revenue and impacted US growth which subsequently has weakened the US dollar. However, all this has been resolved – albeit temporarily until early next year and this should support the US dollar as America gets back on its feet. The Middle East situation seems to be rather quiet at the moment with news about Syria barely newsworthy. The geo-political risks still remain in the volcano of the Middle East and any resumption of talk of an attack would quickly reverse the recent losses of the US currency as speculators would drive up the “safe haven” US dollar. One of the major currencies to weaken from an attack would certainly be Sterling.

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One of the most important question that new traders should be seeking to answer is this: What moves market prices, and how can we anticipate these price changes in advance?

“On the surface, this might seem like an impossibly question to answer — and, to some extent, it is,” said Rick Bartlett, currency analyst at CornerTrader. “But if there was no way to forecast market activity there would be no successful traders.” Because of this, it should be understood that we can forecast market behavior with some degree of probability. The key to this lies in assessing market expectations versus market reality. The easiest way to do this is to look at the schedule of fundamental and economic data and its accompanying consensus estimates.

Using Economic Data Results to Determine Sentiment and Expectations

Understanding the resulting impact of the actual results in relation to the forecast figure is the most important part of the equation. These factors must be considered before deciding to place any trade. While assessing economic data might seem very difficult, in some ways it is actually quite easy, as long we as understand what the market is expecting prior to the release, and the reality of the data once all of the market knows the actual figures posted in the report.

Here are some general rules to consider: If the estimates are lower than the released data, we can generally expect the currency to rise. If the estimates match or are very close to the actual data figure, we can expect little change in the price of the currency. If the data is found to be lower than the market’s original estimates, we would generally expect the currency to decline.

At this point, you might be asking – Is it really this simple? Don’t I need some understanding of what these releases actually mean? To this, the answer is that you will always benefit from a greater understanding of what economic releases are telling you. Greater information will always give you a greater advantage. However, it should be remembered that the market activity that you will encounter will mostly be generated by the original expectations of the majority — and then by the final outcome of the event that is being watched.

Looking at Specific Economic Reports

It should be understood that not all economic reports are the same, so they will not always have the same effect on currency prices. For example, Gross Domestic Product (GDP) numbers will generally have a much greater effect on currency prices than a Retail Sales report or a manufacturing survey, as these only provide information about a small section of the economy. When most of the market is focused on the results of a data release, volatility is likely to see larger gains, and the price explosions that follow will be larger. These types of events are the ones that truly generate new trends, and should be viewed as excellent opportunities for establishing new long term positions.

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Since Forex technical analysis focuses on the changes that are seen in various price movements, it can be said that technical forex trading boils down the process of investment into its simplest form. “If price activity meets the definition of what makes a trend or potential reversal technical analysis in Forex trading can give traders an idea of how to trade current market activity and to make forecasts about what will likely happen next.”, said Haris Constantinou, currency analyst at TeleTrade.

In addition to this, technical analysis can give traders an idea of when not to trade. While this might seem like a contradiction, it can be one of the key features in knowing when price signals are not lining up in an optimal fashion or falling into high probability trading scenarios. Knowing when not to trade will help greatly in improving your profit and loss ratios. This will you to stay in the forex trading game for the long term, and help you to avoid some of the drastic losses often experienced by new forex traders.

Making Market Information Manageable

Computer trading has made it possible to analyze market volumes and general momentum in ways that were not possible years past and this can be done with a simple look at your trading charts. In addition to this, we all know that the forex markets involve a large number of currency pairs that can be traded at any time. Because of this, suitable trading entries can be identified if enough currency pairs are monitored. For this reason, most forex traders recommend that you watch a wide number of currencies so that new position entries are not missed.

Technical analysis has some basic tenets that have been widely researched and used successfully by many traders over the long term. Once of the most commonly understood assumptions is that history (and price activity) tends to repeat itself in predictable ways. While this does not mean that these repetitions will be true 100% of the time, it does mean that monitoring historical price action can give traders an edge in determining high probability forecasts and trading options that would not otherwise be noticeable. Focusing on price-action and chart patterns can help traders to focus on what really matters (the exact price levels themselves) and to isolate probabilities so that only the trades with the highest likelihood of success can be taken.

So, it should be understood that some of the primary advantages of technical analysis in forex trading is the fact that these methods will help traders identify opportunities that will often be missed by those focusing solely on fundamental analysis. While there is certainly nothing wrong with using economic data as a basis for long and short positions, it would also be a mistake to completely disregard the immense benefits that chart based trading can offer.

While trading patterns can seem complicated and difficult to identify, some very common formations can be used for daily trading. Some of the most well-known names include head-and-shoulders patterns, double-top and triple tops (and bottoms), triangle patterns (ascending,descending, and symmetrical), and all of these have proven, over time, to give traders an edge when looking for enhanced gains because of their strong predictive sources.

But perhaps the key benefit to technical analysis trading is that these patterns would be virtually impossible to identify without using price charts. Since charting is free in most cases, and quickly accomplished, there is very little reason to avoid tapping into the discipline’s predictive power. But for some reason, many traders fail to understand that conventional trading methods can be enhanced in ways that dramatically increase overall profitability. It can become very easy to fall into a standard routine and standard conventions.

But since new and improved technology has removed the difficulty of performing difficult mathematical calculations, and since many internet sites offer technical indicator software that can be inputted into your trading station, there is essentially no excuse for not using these tools, testing them in various forms, and implementing them in ways that heighten our trading results in ways that were not previously possible.

A final point on the benefits of technical analysis can be seen in the fact that technical analysis takes a lot less time to conduct and research than fundamental analysis. While some might view technical analysis with skepticism because of this, there is a large amount of broker data that show the success of technical strategies being just as profitable as fundamental strategies – but with less time and effort spent on a daily basis.

Price charts can, literally, provide a wealth of trading information in a very small amount of time. Traders are quickly able to identify trends and latch their trades onto those trends. Levels that mark significant areas of support and resistance can be seen at a glance. Volatility levels, momentum levels, momentum direction, and pricing patterns are some of the key pieces on information that are available to technicians (and not as readily available to fundamental traders). These key benefits will give you an edge when you are looking to step up your game as a trader and will allow you to see markets events that are not visible to all participants.

It should always be remembered that your pricing charts are telling you a story, not just about where a currency has been but in where it is going as well. Pricing charts will enable you to see market activity in its purest sense. But at the same time, pricing charts can give you a more complicated and deeper insight into markets as well, and in the following sections we will look at some of the ways technicians can enhance their trading using methods and research pieces that have been shown to increase profitability over the longer term.

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US Dollar drops on Debt Ceiling Agreement – Government Jobs Report to come on Tuesday

Euro at 8 month high vs USD

The US dollar was on the defensive across the board last week against the other major currencies in forex market trading as, after much drama, the US government debt crisis was resolved in agreement (for the time being). US stock markets jumped higher on the news that the government will be funded through January 15th and allowed to borrow through February 7, 2014.

The US dollar, meanwhile, was sold off sharply and registered declines for the week against the euro, British pound sterling, Japanese yen, Swiss franc, Canadian dollar, Australian dollar and the New Zealand dollar.

Notably, the US dollar dropped to multi-month lowpoints against the euro (8 month high), the Australian dollar (4 month high) and the New Zealand dollar (5 month high).

NZDUSD approaching the 0.8500 level for 1st time since May

AUDUSD likely to test the 0.9700 level this week

This Week’s Fundamental Outlook – US Non-farm Payroll Government Jobs Report due to hit the market on Tuesday

Added to the economic schedule this week is the release of the US government non-farm payrolls jobs report for September. This market-moving report is due out on Tuesday after having been rescheduled due to the US government shutdown.

On the release schedule for Monday is Germany’s producer price index and the United States existing home sales data.

Tuesday will have the US non-farm jobs report as well as Canadian retail sales and trade balance data from Switzerland.

Wednesday we can look forward to the Australian consumer price index, the bank of England meeting minutes, the latest interest rate decision out of Canada as well as the Canadian monetary policy report and bank of Canada press conference.

Thursday will feature United States weekly jobless claims and new home sales, German and euro PMI data and the consumer price index out of Japan.

Friday we can look forward to the GDP report out of the United Kingdom and the durable goods report from the US.

AUD/JPY’s strong uptrend from 74.47 to 105.43 had to have some consolidation. Such a big upward move would naturally call for a 61.8% retracement. Can we say that the correction or consolidation is over and the pair should now hit the century again?

AUD/JPY after 61.8% retracement

The break over 94.44 suggests that the pair should be able to overcome the psychological resistance of 95.00 soon. If that happens then it should target 100.00 in the coming days.

Many currencies have nick names which are commonly known. My personal nick name which I use privately for the Australian dollar is “The Artistic Currency”.

Artists are supposed to be a bit more sentimental and emotional and yes, our Aussie reacts very fast to even a slight change is the sentiments about the global economy. But the story does not end here. I am not sure if you have noticed or not but please do it when you find some time. The price action of Aussie pairs are generally very artistic too. Many times you will find the price action following perfect geometric shapes. At least the geometric patterns I see the Australian dollar currency pairs to follow are more engaging then most of the other currency pairs.

Aussie – The Artistic Currency

Aussie – The Half Moon

Well, the first chart was an old chart and I do have a collection of engaging patterns of Aussie. The second half moon chart is the recent or I can say current daily chart.

Will the half moon formation complete?

What to expect with the recent strong jump? Well, I would expect that AUD/USD will not only complete the 50% retracement of the downward move from 1.0582 to 0.8848 which is at 0.9715 but it should try to test the resistance zone of 0.9791 to 0.9842.

Aussie – The Technician

Well, let’s wait and see if the artist becomes a technician also to finish drawing the half moon by following the price action analysis technically.

Please do leave your comments in the comment box below to share your opinions. You are important for us and your comments are are too.

Recently GBP/USD has been indicating a bullish outlook all through. However the upward moves which had started from the low of 1.4813 has clearly lost the momentum.

Though it may seem to be repetition of what we have been saying for past some months but it is always better to repeat and remember than to miss the caution. For past 4 years the support and resistance trend lines have been in place for the currency pair.

GBP/USD weekly chart with trend lines

Once when the support line had failed, the same line had turned into resistance. The recent price action has been now below the original resistance line. As evident from the above chart, the resistance has clearly been working.

What else apart from the trend lines?

If, for one moment, we forget the caution presented by the mentioned trend line, we do have other factors which are against the continuance of the bullish outlook.

From April 2012 to till date, the pair had failed 3 times miserably in the range of 1.6301 to 1.6309.

GBP/USD and the failure zone

On one occasion when the pair had managed to break this resistance of 1.6101 to 1.6109 zone, it had just managed to gain 72 pips more to fail at 1.6381.

What to expect?

Well, the above factors clearly indicate that GBP/USD is up against some quite strong restrictive pressures technically. Or we should say price action analysis wise? A caution is required at the current price action level below 1.6309 and even if a break over 1.6309 takes place, we need to keep the bullish outlook in check till any break over 1.6381 does not take place. Any failure against the mentioned resistances and a break below the recent 1.5894 should open the doors for the 38.2% retracement of the move from 1.4813 to 1.6260 i.e. 1.5706.

Do leave your comments in the comment box below this post to share your opinions.

Those getting started in the world of forex will have many tasks ahead when looking at the various strategies in learning how to trade in the forex markets. But the first task (and one of the most important) is to settle on your forex broker. This is essentially the company that will give you access to the markets, so that you can actively trade from your home rather than having to move to a large market exchange. But not all forex brokers are created equal. There are some key differences and advantages that must be understood so that you can make sure you are getting the best possible deal from a reputable, regulated broker.

Execution and Spreads

All forex brokers charge a fee for their services. This fee is called the “spread,” and is essentially the price difference to buy or sell a specific currency pair. For example, if your forex broker will allow you to buy the EUR/USD at 1.3500, and sell it at 1.3495, your spread is 5 percentage points, or pips. Some brokers offer fixed spreads (which do not change), while others offer variable spreads (that change along with the underlying dynamics of the market). Of course, a smaller spread is always better. But you don’t want to pay a lower price at a forex broker that has poor trading execution (which means you might not enter the market at your desired price).

Forex Education Materials

The next feature, and arguably the most important, is the library of forex education offered to trading clients. As with most things, a solid education is essential for success but not all brokers devote much time and energy to offering materials that explain some of the most important elements of the market (such as the differences between certain economic releases, trading mechanics, or technical indicators). One of the most comprehensive forex education libraries I have seen is at TeleTrade.eu, which has a variety of reading materials, video lessons, and even one-on-one mentoring. Time and patience must be devoted in these areas and a good broker is one that will help you understand the information needed to successfully trade.

Simplified Trading Stations

One of the final factors to consider is the trading software that is offered by the broker. For those getting started, a simple platform is an absolute necessity as this will help to avoid unnecessary trading mistakes that can lead to accumulated losses. Websites like MT5.com offer detailed lessons and forum discussions on the MetaTrader platform, which is one of the most commonly used platforms used in forex markets. But even with these resources, it is important to have constant access to your broker’s customer service outlet so that you can always have questions if anything becomes confusing.

Taken in combination, all of these factors are critical when you are selecting a broker. Remember, there is a lot of competition out there, so if you believe your forex broker is not giving you the best deal, it is never too late to move your money elsewhere.

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